Company directors need to get 'hands on' to avoid Work Health & Safety Liability
The recent decision in Inspector James v Paul (No 2)  NSWIRComm 117 serves as a timely reminder that the role of company director involves a greater degree of responsibility (and possible liability) than many people contemplate when accepting the position.
The case concerned the liability of a company director for the death of an employee of Dekorform Pty Ltd (Dekorform), who died of serious injuries sustained after a machine he had been operating malfunctioned. The director, Mr Robert Paul, who was not involved in the day to day operations of Dekorform, was found guilty of breaching sections 8(1) and 26 of the Occupational Health and Safety Act 2000 (NSW).
DIRECTOR’S LIABILITY UNDER THE NEW WORK HEALTH AND SAFETY ACT 2011 (QLD) (THE WH&S ACT)
The operation of the WH&S Act commenced in Queensland on 1 January 2012 and represents a shift away from the notion that directors and officers will only be liable for work health and safety breaches vicariously through the contraventions by the company itself. Queensland directors and officers now have a positive duty to be proactive in ensuring that their own personal obligations under the WH&S Act are being met.
The definition of ‘officer’ under the WH&S Act reflects the definition of ‘officer’ in the Corporations Act 2001 (Cth) (the Corporations Act). The definition of officer includes directors and board members but does not include, for instance, supervisors and middle management. Depending on the business structure of a particular organisation, determining whether a person falls within the definition of an ‘officer’ may require some exploration.
Officers are required to exercise ‘due diligence’ to ensure that the company is meeting its obligations under the WH&S Act. This positive duty requires officers to:
- acquire and keep up-to-date knowledge of work health and safety matters;
- gain an understanding of the nature of the operations of the business and the hazards and risks associated with those operations;
- ensure that the person conducting the business uses appropriate resources and processes to eliminate or minimise risks to health and safety from work carried out as part of the conduct of the business; and
- ensure that the person conducting the business has appropriate processes for receiving and considering information regarding incidents, hazards and risks and responding in a timel y way to that information.
Officers who breach their duties under the WH&S Act expose themselves to significant penalties that include fines ranging up to $600,000.00 and five years’ jail where the breach of the obligation recklessly exposes a person to risk of death or serious injury or illness. Given that the obligation is to exercise ‘due diligence’, an incident causing injury or death need not occur before an officer is exposed to risk of prosecution under the WH&S Act.
DIRECTOR’S LIABILITY UNDER THE CORPORATIONS ACT
Although the WH&S Act provides specific due diligence requirements that company directors must satisfy to discharge their duties under the Act, a duty to act with a degree of care and diligence expected from a reasonable person has long been imposed on directors by the Corporations Act.
The Corporations Act acknowledges that the standard of care, skill and diligence deemed to be reasonable will vary in each particular case, depending on the nature of the company and the duty holder’s position and responsibilities. Notably, it has been held that directors who hold particular roles may have an increased standard of care and diligence expected of them – which would have been relevant to Mr Paul, who was directorially responsible for occupational health and safety, including compliance, at Dekorform. Effectively, a higher level of care and diligence was expected of Mr Paul in comparison to the other directors of Dekorform, in relation to matters that he was directorially responsible for.
Despite this subjective approach, it has been held that all directors need to meet a minimum objective level of skill and have a minimum understanding of the business of the corporation; if a director cannot initially meet this level, then they need to inform themselves to the requisite degree, or alternatively, not act as a director. Although this approach seems logical, many people who take up a role as a company director do not reflect on whether their own level of skill and understanding is sufficient to discharge this duty before committing to the position.
In addition, directors need to continue to keep themselves informed about the company’s affairs and supervise the management and their business practices. Importantly, this duty will not necessarily be satisfied simply by attending board meetings – if an event occurs which a director had not inquired about, but which could have been prevented had proper inquiry occurred, the director may be found liable for not discharging their duty under the Corporations Act.
WHAT CAN I DO TO MITIGATE MY RISK AS A DIRECTOR?
To avoid being found liable for failure to discharge your duties under the WH&S Act and the Corporations Act, current directors ought to:
- regularly incorporate work health and safety recognition into board meetings;
- ensure that worksites are financially equipped to provide adequate safety equipment and training for those the WH&S Act is intended to protect;
- systematically consider and respond to work health and safety complaints swiftly; and
- get ‘hands on’ in the company, where appropriate – talk to ‘front line’ employees and find out about the day to day running of the business and other matters not usually discussed in board meetings.
Prior to acting as director:
- carefully consider whether you have a sufficient level of business-related knowledge and skill, as well as sufficient knowledge of the particular company; and
- ensure that you are aware of both your work health and safety duties as a director, and the penalties for breaching those duties.
If you have any questions in relation to this bulletin then please do not hesitate to contact any of the members of CG Law’s workplace relations team.